government investigations

Family summer visits and trips are in the rear view–as well as the simultaneous demands of balancing the responsibilities of a, you know, day job–and so it is time to take up blogging once again.

I will return to my running topic of Integrated Program and Project Management in short order, but a topic of more immediate interest concerns the article that appeared on the website for pogo.org last week entitled “Pentagon’s Contracting Gurus Mismanaged Their Own Contracts.” Such provocative headlines are part and parcel of organizations like POGO, which have an agenda that seems to cross the line between reasonable concern and unhinged outrage with a tinge conspiracy mongering. But the content of the article itself is accurate and well written, if also somewhat ripe with overstatement, so I think it useful to unpack what it says and what it means.

POGO begins the article by stating that DCMA administers over $5 trillion in contracts for the Department of Defense. The article erroneously asserts that it also negotiates these contracts, apparently not understanding the process of contract oversight and administration. The cost of IWMS was apparently $46.6M and the investigation into the management and administration of the program was initiated by the then-Commander of DCMA, Lieutenant General Wendy Masiello, shortly before she retired from the government in May 2017.

The implication here, given the headline, seems to be that if there is a problem in internal management within the agency, then that would translate into questioning its administration of the $5 trillion in contract value. I view it differently, given that I understand that there are separate lines of responsibility in the agency that do not overlap, particularly in IT. Of the $46.6M there is a question of whether $17M in value was properly funded. More on this below, but note that, to put things in perspective, $46.6M is .000932% of DCMA’s oversight responsibility. This is aside from the fact that the comparison is not quite correct, given that the CIO had his own budget, which was somewhat smaller and unrelated to the $5 trillion figure. But I think it important to note that POGO’s headline and the introduction of figures, while sounding authoritative, are irrelevant to the findings of the internal investigation and draft report. This is a scare story using scare numbers, particularly given the lack of context. I had some direct experience in my military career with issues inspired by the POGO’s founders’ agenda that I will cover below.

In addition to the internal investigation on IWMS, there was also an inspector general (IG) investigation of thirteen IT services contracts that resulted in what can only be described as pedestrian procedural discrepancies that are easily correctable, despite the typically overblown language found in most IG reports. Thus, I will concentrate on this post on the more serious findings of the internal investigation.

My Own Experience with DCMA

A note at this point on full disclosure: I have done business with and continue to do business with DCMA, both as a paid supplier of software solutions, and have interacted with DCMA personnel at publicly attended professional forums and workshops. I have no direct connection, as far as I am aware, to the IWMS program, though given that the assessment is to the IT organization, it is possible that there was an indirect relationship. I have met Lieutenant General Masiello and dealt with some of her subordinates not only during her time at DCMA, but also in some of her previous assignments in Air Force. I always found her to be an honest and diligent officer and respect her judgment. Her distinguished career speaks for itself. I have talked on the telephone to some of the individuals mentioned in the article on unrelated matters, and was aware of their oversight of some of my own efforts. My familiarity with all of them was both businesslike and brief.

As a supplier to DCMA my own contracts and the personnel that administer them were, from time-to-time, affected by the fallout from what I now know to have occurred. Rumors have swirled in our industry regarding the alleged mismanagement of an IT program in DCMA, but until the POGO article, the reasons for things such as a temporary freeze and review of existing IT programs and other actions were viewed as part and parcel of managing a large organization. I guess the explanation is now clear.

The Findings of the Investigation

The issue at hand is largely surrounding the method of source selection, which may have constituted a conflict of interest, and the type of money that was used to fund the program. In reading the report I was reminded of what Glen Alleman recently wrote in his blog entitled “DDSTOP: The Saga Continues.” The acronym DDSTOP means: Don’t Do Stupid Things On Purpose.

There is actually an economic behavioral principle for DDSTOP that explains why people make and double down on bad decisions and irrational beliefs. It is called epistemic sunk cost. It is what causes people to double down in gambling (to the great benefit of the house), to persist in mistaken beliefs, and, as stated in the link above, to “persist with the option which they have already invested in and resist changing to another option that might be more suitable regarding the future requirements of the situation.” The findings seem to document a situation that fits this last description.

In going over the findings of the report, it appears that IWMS’s program violated the following:

a. Contractual efforts in the program that were appropriate for the use of Research, Development, Test and Evaluation (R,D,T & E) funds as opposed to those appropriate for O&M (Operations and Maintenance) funds. What the U.S. Department of Defense calls “color of money.”

b. Amounts that were expended on contract that exceeded the authorized funding documents, which is largely based on the findings regarding the appropriate color of money. This would constitute a serious violation known as an Anti-Deficiency Act violation which, in layman’s terms, is directed to punish public employees for the misappropriation of government funds.

c. Expended amounts of O&M that exceeded the authorized levels.

d. Poor or non-existent program management and cost performance management.

e. Inappropriate contracting vehicles that, taken together, sidestepped more stringent oversight, aside from the award of a software solutions contract to the same company that defined the agency’s requirements.

Some of these are procedural and some are serious, particularly the Anti-deficiency Act (ADA) violations, are serious. In the Contracting Officer’s rulebook, you can withstand pedestrian procedural and administrative findings that are part and parcel of running an intensive contracting organization that acquires a multitude of supplies and services under deadline. But an ADA violation is the deadly one, since it is a violation of statute.

As a result of these findings, the recommendation is for DCMA to lose acquisition authority over the DoD micro-contracting level ($10,000). Organizationally and procedurally, this is a significant and mission-disruptive recommendation.

The Role and Importance of DCMA

DCMA performs an important role in contract compliance and oversight to ensure that public monies are spent properly and for the intended purpose. They perform this role mostly on contracts that are negotiated and entered into by other agencies and the military services within the Department of Defense, where they are assigned contract administration duties. Thus, the fact that DCMA’s internal IT acquisition systems and procedures were problematic is embarrassing.

But some perspective is necessary because there is a drive by some more extreme elements in Congress and elsewhere that would like to see the elimination of the agency. I believe that this would be a grave mistake. As John F. Kennedy is quoted as having said: “You don’t tear your fences down unless you know why they were put up.”

For those of you who were not around prior to the formation of DCMA or its predecessor organization, the Defense Contract Management Command (DCMC), it is important to note that the formation of the agency is a result of acquisition reform. Prior to 1989 the contract administration services (CAS) capabilities of the military services and various DoD offices varied greatly in capability, experience, and oversight effectiveness.Some of these duties had been assigned to what is now the Defense Logistics Agency (DLA), but major acquisition contracts remained with the Services.

For example, when I was on active duty as a young Navy Supply Corps Officer as part of the first class that was to be the Navy Acquisition Corps, I was taught cradle-to-grave contracting. That is, I learned to perform customer requirements development, economic analysis, contract planning, development of a negotiating position, contract negotiation, and contract administration–soup to nuts. The expense involved in developing and maintaining the skill set required of personnel to maintain such a broad-based expertise is unsustainable. For analogy, it is as if every member of a baseball club must be able to play all nine positions at the same level of expertise; it is impossible.

Furthermore, for contract administration a defense contractor would have contractual obligations for oversight in San Diego, where I was stationed, that were different from contracts awarded in Long Beach or Norfolk or any of the other locations where a contracting office was located. Furthermore, the military services, having their own organizational cultures, provided additional variations that created a plethora of unique requirements that added cost, duplication, inconsistency, and inter-organizational conflict.

This assertion is more than anecdotal. A series of studies were commissioned in the 1980s (the findings of which were subsequently affirmed) to eliminate duplication and inconsistency in the administration of contracts, particularly major acquisition programs. Thus, DCMC was first established under DLA and subsequently became its own agency. Having inherited many of the contracting field office, the agency has struggled to consolidate operations so that CAS is administered in a consistent manner across contracts. Because contract negotiation and program management still resides in the military services, there is a natural point of conflict between the services and the agency.

In my view, this conflict is a healthy one, as all power in the hands of a single individual, such as a program manager, would lead to more fraud, waste, and abuse, not less. Internal checks and balances are necessary in proper public administration, where some efficiency is sacrificed to accountability. It is not just the goal of government to “make the trains run on time”, but to perform oversight of the public’s money so that there is accountability in its expenditure, and integrity in systems and procedures. In the case of CAS, it is to ensure that what is being procured actually gets delivered in conformance to the contract terms and conditions designed to reduce the inherent risk in complex acquisition programs.

In order to do its job effectively, DCMA requires innovative digital systems to allow it to perform its CAS function. As a result, the agency must also possess an acquisition capability. Given the size of the task at hand in performing CAS on over $5 trillion of contract effort, the data involved is quite large, and the number of personnel geographically distributed. The inevitable comparisons to private industry will arise, but few companies in the world have to perform this level of oversight on such a large economic scale, which includes contracts comprising every major supplier to the U.S. Department of Defense, involving detailed knowledge of the management control systems of those companies that receive the taxpayer’s money. Thus, this is a uniquely difficult job. When one understands that in private industry the standard failure rate of IT projects is more than 70% percent, then one cannot help but be unimpressed by these findings, given the challenge.

Assessing the Findings and Recommendations

There is a reason why internal oversight documents of this sort stay confidential–it is because these are preliminary/draft findings and there are two sides to every story which may lead to revisions. In addition, reading these findings without the appropriate supporting documentation can lead one to the wrong impression and conclusions. But it is important to note that this was an internally generated investigation. The checks and balances of management oversight that should occur, did occur. But let’s take a close look at what the reports indicate so that we can draw some lessons. I also need to mention here that POGO’s conflation of the specific issues in this program as a “poster child” for cost overruns and schedule slippage displays a vast ignorance of DoD procurement systems on the part of the article’s author.

Money, Money, Money

The core issue in the findings revolves around the proper color of money, which seems to hinge on the definition of Commercial-Off-The-Shelf (COTS) software and the effort that was expended using the two main types of money that apply to the core contract: RDT&E and O&M.

Let’s take the last point first. It appears that the IWMS effort consisted of a combination of COTS and custom software. This would require acquisition, software familiarization, and development work. It appears that the CIO was essentially running a proof-of-concept to see what would work, and then incrementally transitioned to developing the solution.

What is interesting is that there is currently an initiative in the Department of Defense to do exactly what the DCMA CIO did as part of his own initiative in introducing a new technological approach to create IWMS. It is called Other Transactional Authority (OTA). The concept didn’t exist and was not authorized until the 2016 NDAA and is given specific statutory authority under 10 U.S.C. 2371b. This doesn’t excuse the actions that led to the findings, but it is interesting that the CIO, in taking an incremental approach to finding a solution, also did exactly what was recommended in the 2016 GAO report that POGO references in their article.

Furthermore, as a career Navy Supply Corps Officer, I have often gotten into esoteric discussions in contracts regarding the proper color of money. Despite the assertion of the investigation, there is a lot of room for interpretation in the DoD guidance, not to mention a stark contrast in interpreting the proper role of RDT&E and O&M in the procurement of business software solutions.

When I was on the NAVAIR staff and at OSD I ran into the difference in military service culture where what Air Force financial managers often specified for RDT&E would never be approved by Navy financial managers where, in the latter case, they specified that only O&M dollars applied, despite whether development took place. Given that there was an Air Force flavor to the internal investigation, I would be interested to know whether the opinion of the investigators in making an ADA determination would withstand objective scrutiny among a panel of government comptrollers.

I am certain that, given the differing mix of military and civil service cultures at DCMA–and the mixed colors of money that applied to the effort–that the legal review that was sought to resolve the issue. One of the principles of law is that when you rely upon legal advice to take an action that you have a defense, unless your state of mind and the corollary actions that you took indicates that you manipulated the system to obtain a result that shows that you intended to violate the law. I just do not see that here, based on what has been presented in the materials.

It is very well possible that an inadvertent ADA violation occurred by default because of an improper interpretation of the use of the monies involved. This does not rise to the level of a scandal. But going back to the confusion that I have faced from my own experiences on active duty, I certainly hope that this investigation is not used as a precedent to review all contracts under the approach of accepting a post-hoc alternative interpretation by another individual who just happens to be an inspector long after a reasonable legal determination was made, regardless of how erroneous the new expert finds the opinion. This is not an argument against accountability, but absent corruption or criminal intent, a legal finding is a valid defense and should stand as the final determination for that case.

In addition, this interpretation of RDT&E vs. O&M relies upon an interpretation of COTS. I daresay that even those who throw that term around and who are familiar with the FAR fully understand what constitutes COTS when the line between adaptability and point solutions is being blurred by new technology.

Where the criticism is very much warranted are those areas where the budget authority would have been exceeded in any event–and it is here that the ADA determination is most damning. It is one thing to disagree on the color of money that applies to different contract line items, but it is another to completely lack financial control.

Part of the reason for lack of financial control was the absence of good contracting practices and the imposition of program management.

Contracts 101

While I note that the CIO took an incremental approach to IWMS–what a prudent manager would seem to do–what was lacking was a cohesive vision and a well-informed culture of compliance to acquisition policy that would avoid even the appearance of impropriety and favoritism. Under the OTA authority that I reference above as a new aspect of acquisition reform, the successful implementation of a proof-of-concept does not guarantee the incumbent provider continued business–salient characteristics for the solution are publicized and the opportunity advertised under free and open competition.

After all, everyone has their favorite applications and, even inadvertently, an individual can act improperly because of selection bias. The procurement procedures are established to prevent abuse and favoritism. As a solution provider I have fumed quite often where a selection was made without competition based on market surveys or use of a non-mandatory GSA contract, which usually turn out to be a smokescreen for pre-selection.

There are two areas of fault on IMWS from the perspective of acquisition practice, and another in relation to program management.

These are the initial selection of Apprio, which had laid out the initial requirements and subsequently failed to have the required integration functionality, and then, the selection of Discover Technologies under a non-mandatory GSA Blanket Purchase Agreement (BPA) contract under a sole source action. Furthermore, the contract type was not appropriate to the task at hand, and the arbitrary selection of Discover precluded the agency finding a better solution more fit to its needs.

The use of the GSA BPA allowed managers, however, to essentially spit the requirements to stay below more stringent management guidelines–an obvious violation of acquisition regulation that will get you removed from your position. This leads us to what I think is the root cause of all of these clearly avoidable errors in judgment.

Program Management 101

Personnel in the agency familiar with the requirements to replace the aging procurement management system understood from the outset that the total cost would probably fall somewhere between $20M and $40M. Yet all effort was made to reduce the risk by splitting requirements and failing to apply a programmatic approach to a clearly complex undertaking.

This would have required the agency to take the steps to establish an acquisition strategy, open the requirement based on a clear performance work statement to free and open competition, and then to establish a program management office to manage the effort and to allow oversight of progress and assessment of risks in a formalized environment.

The establishment of a program management organization would have prevented the lack of financial control, and would have put in place sufficient oversight by senior management to ensure progress and achievement of organizational goals. In a word, a good deal of the decision-making was based on doing stupid things on purpose.

The Recommendations

In reviewing the recommendations of the internal investigation, I think my own personal involvement in a very similar issue from 1985 will establish a baseline for comparison.

As I indicated earlier, in the early 1980s, as a young Navy commissioned officer, I was part of the first class of what was to be the Navy Acquisition Corps, stationed at the Supply Center in San Diego, California. I had served as a contracting intern and, after extensive education through the University of Virginia Darden School of Business, the extended Federal Acquisition Regulation (FAR) courses that were given at the time at Fort Lee, Virginia, and coursework provided by other federal acquisition organizations and colleges, I attained my warrant as a contracting officer. I also worked on acquisition reform issues, some of which were eventually adopted by the Navy and DoD.

During this time NAS Miramar was the home of Top Gun. In 1984 Congressman Duncan Hunter (the elder not the currently indicted junior of the same name, though from the same San Diego district), inspired by news of $7,600 coffee maker and a $435 hammer publicized by the founders of POGO, was given documents by a disgruntled employee at the base regarding the acquisition of replacement E-2C ashtrays that had a cost of $300. He presented them to the Base Commander, which launched an investigation.

I served on the JAG investigation under the authority of the Wing Commander regarding the acquisitions and then, upon the firing of virtually the entire chain of command at NAS Miramar, which included the Wing Commander himself, became the Officer-in-Charge of Supply Center San Diego Detachment NAS Miramar. Under Navy Secretary Lehman’s direction I was charged with determining the root cause of the acquisition abuses and given 60-90 days to take immediate corrective action and clear all possible discrepancies.

I am not certain who initiated the firings of the chain of command. From talking with contemporaneous senior personnel at the time it appeared to have been instigated in a fit of pique by the sometimes volcanic Secretary of Defense Caspar Weinberger. While I am sure that Secretary Weinberger experienced some emotional release through that action, placed in perspective, his blanket firing of the chain of command, in my opinion, was poorly advised and counterproductive. It was also grossly unfair, given what my team and I found as the root cause.

First of all, the ashtray was misrepresented in the press as a $600 ashtray because during the JAG I had sent a sample ashtray to the Navy industrial activity at North Island with a request to tell me what the fabrication of one ashtray would cost and to provide the industrial production curve that would reduce the unit price to a reasonable level. The figure of $600 was to fabricate one. A “whistleblower” at North Island took this slice of information out of context and leaked it to the press. So the $300 ashtray, which was bad enough, became the $600 ashtray.

Second, the disgruntled employee who gave the files to Congressman Hunter had been laterally assigned out of her position as a contracting officer by the Supply Officer because of the very reason that the pricing of the ashtray was not reasonable, among other unsatisfactory performance measures that indicated that she was not fit to perform those duties.

Third, there was a systemic issue in the acquisition of odd parts. For some reason there was an ashtray in the cockpit of the E-2C. These aircraft were able to stay in the air an extended period of time. A pilot had actually decided to light up during a local mission and, his attention diverted, lost control of the aircraft and crashed. Secretary Lehman ordered corrective action. The corrective action taken by the squadron at NAS Miramar was to remove the ashtray from the cockpit and store them in a hangar locker.

Four, there was an issue of fraud. During inspection the spare ashtrays were removed and deposited in the scrap metal dumpster on base. The tech rep for the DoD supplier on base retrieved the ashtrays and sold them back to the government for the price to fabricate one, given that the supply system had not experienced enough demand to keep them in stock.

Fifth, back to the systemic issue. When an aircraft is to be readied for deployment there can be no holes representing missing items in the cockpit. A deploying aircraft with this condition is then grounded and a high priority “casuality report” or CASREP is generated. The CASREP was referred to purchasing which then paid $300 for each ashtray. The contracting officer, however, feeling under pressure by the high priority requisition, did not do due diligence in questioning the supplier on the cost of the ashtray. In addition, given that several aircraft deploy, there were a number of these requisitions that should have led the contracting officer to look into the matter more closely to determine price reasonableness.

Furthermore, I found that buying personnel were not properly trained, that systems and procedures were not established or enforced, that the knowledge of the FAR was spotty, and that procurements did not go through multiple stages of review to ensure compliance with acquisition law, proper documentation, and administrative procedure.

Note that in the end this “scandal” was born by a combination of systemic issues, poor decision-making, lack of training, employee discontent, and incompetence.

I successfully corrected the issues at NAS Miramar during the prescribed time set by the Secretary of the Navy, worked with the media to instill public confidence in the system, built up morale, established better customer service, reduced procurement acquisition lead times (PALT), recommended necessary disciplinary action where it seemed appropriate, particularly in relation to the problematic employee, recovered monies from the supplier, referred the fraud issues to Navy legal, and turned over duties to a new chain of command.

NAS Miramar procurement continued to do its necessary job and is still there.

What the higher chain of command did not do was to take away the procurement authority of NAS Miramar. It did not eliminate or reduce the organization. It did not close NAS Miramar.

It requires leadership and focus to take effective corrective action to not only fix a broken system, but to make it better while the corrective actions are being taken. As I outlined above, DCMA performs an essential mission. As it transitions to a data-driven approach and works to reduce redundancy and inefficiency in its systems, it will require more powerful technologies to support its CAS function, and the ability to acquire those technologies to support that function.